Energy: Gasoline Prices to Keep Creeping Higher

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Gasoline prices keep nudging higher. At $3.07 per gallon, the national average price of regular unleaded is at its highest point since 2014. It’s up three cents from a week ago, and 11 cents from a month ago. Fuel consumption in the United States continues to recover from the huge drop caused by the COVID-19 pandemic last year, when millions of Americans were not driving to their jobs or to take vacations. Now, as normal life returns, consumers are hitting the roads again in a big way. Meanwhile, oil production remains below its prepandemic normal. We look for the price at the pump to keep creeping up during the early summer because of continued strong demand. And if a hurricane, a pipeline shutdown or other disruption hits fuel supply chains, gas prices could shoot substantially higher. Diesel is also on the rise, with the national average price now up to $3.20 per gallon.

Crude oil prices have surpassed the peak they hit shortly before COVID-19 sent them crashing. Benchmark West Texas Intermediate has risen to $70 per barrel as the rebounding global economy causes oil demand to rise faster than producers can ramp up production. In the United States, the world’s largest oil producer, output is rising but remains well below its pre-COVID peak. OPEC and Russia are restarting production they shut down last year when demand was weak, but are doing so gradually. Strong demand plus lingering supply shortfalls should keep prices elevated.

Natural gas prices are on the rise, too. At $3.12 per million British thermal units, the benchmark gas futures contract has risen about 50 cents over the past two months. Stockpiles of gas in underground storage are below average for this time of year, and the hottest weather of the summer is imminent. Strong electricity demand from air conditioners will require a lot of gas to keep power plants running. If a sustained heat wave hits the heavily populated Mid-Atlantic states, gas prices could rise well above $3 per MMBtu.